While most of the rumors about NY Governor Paterson have involved his actions in the boudoir his real problem involve the real action, the horse track. He is being investigated for the  awarding of a state contract for video lottery machines at the Aqueduct Race track.  Some Paterson aides have signaled they may quit over what some call his “corrupt decision” to give the lucrative Aqueduct gaming contract to a questionable consortium that includes the Rev. Floyd Flake of Queens, whose political support the poll-challenged governor has aggressively sought.

Further review of the bid by Rev. Flake’s group (Aqueduct Entertainment Group or AEG) shows it to be seriously flawed in its financing:

“A consortium is only as strong as its weakest link, and all the links here, with the exception of Siemens [one of AEG’s partners], lack financial firepower,” said Jeff Hooke, a gaming analyst and managing director of Hooke Associates, an investment-banking firm.

“This violates a basic rule of project finance — that the principal sponsor has a majority interest and be bankable.”

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 There are also questions whether AEG has the experience needed:

Because Aqueduct doesn’t have any nearby competition in the gaming business, the state should have considered a bidder with “more experience building and operating a large facility in an urban setting,” said Hooke.

Most importantly the AIG was the one that would have generate the LEAST income for the state. That is, until:

In a move experts say “sure looks fishy,” the politically connected consortium that won the bid for video slots at Aqueduct dramatically changed its bid at the end of the selection process — jumping from last place to first in terms of the amount of revenue it would raise for the state, documents released yesterday show.

The Aqueduct Entertainment Group, led by former Rep. Floyd Flake of Queens, had ranked at the bottom in terms of how much revenue the project would raise — $2.9 billion, according to a Nov. 12 analysis by state budget official Jim Sherman.
But something that experts said raised a red flag happened when Gov. Paterson’s office permitted the bidders to revise their proposals last August. All the other bidders’ revenue projections remained the same in the second round — but not AEG’s. It suddenly shot up to first place — the highest revenue-generating spot.

The group’s updated projected cash flow skyrocketed a whopping $700 million — to $3.6 from $2.9 billion, the analysis showed.

Funny how that can happen. 

“It sure looks fishy,” said Jeff Hooke, a Maryland-based financial analyst who has conducted studies of the gaming industry.

James Featherstonhaugh, a lobbyist for rival Delaware North, said, “There’s no reason why their numbers have changed. Nobody else’s number did.”

Sherman also said AEG was not anywhere near the winner’s circle when factoring in the upfront license fees that bidders promised to the state.

Penn National offered $310 million. AEG offered $200 million at the governor’s request after initially submitting $151 million upfront.

Sherman said other bidders would have to generate substantially more from the 4,500 video lottery machines “to produce the same gain to the state” as Penn National over the life of the 20-to-30-year franchise. Delaware North came in second under this analysis.

AEG spokesman Jonathan Rosen defended the dramatic jump in revenues, attributing it to an updated internal analysis that boosted the number of video lottery terminals the group would open to 3,000 from 1,200.

Meanwhile, Paterson’s office refused to release any analysis conducted by the state Lottery Division, citing an ongoing federal investigation of bidding information.

That makes sense until you realize that last week the Governor claimed the federal probe had nothing to do with the Aqueduct project.

Unlike the sexual rumors, the Aqueduct scandal has all of the markings of serious political corruption. Governor Paterson said that the only way he will leave office is the ballot box or his body in a box, if this scandal grows, he may leave via option three the “perp walk.”